Editor’s Note: Opportunities to sponsor events and partner with other brands can be powerful tools for building awareness, expanding reach, and offering fresh content and experiences that capture new audiences and re-engage existing ones. Leveraging relationships with complementary brands and organizations can increase your market visibility, drive new business and put your name in front of new targets. Supporting a charitable organization can be an especially powerful path for enhancing your brand image and strengthening positive perceptions of your organization and its services.
All the benefits of co-marketing and co-promotions, however—whether with for-profit or nonprofit entities—come with potential legal and regulatory pitfalls. At a recent webinar, Manatt revealed how you can maximize the rewards while you mitigate the risks of sponsorships and co-branding. In part 1 of our article, published in Manatt’s October “Health Update,” we discussed applicable healthcare laws and sponsorship agreements. In part 2 of our article, below, we examine commercial co-ventures/cause marketing. Click here to view the full webinar free, on demand—and here to download a free copy of the presentation.
What Is Cause Marketing?
Cause marketing is a marketing program or arrangement in which a for-profit entity links its marketing activities to a nonprofit organization or charitable cause. Cause marketing might involve a commercial co-venture (CCV). For example, a cause marketing campaign could include a CCV, where a for-profit entity advertises to the public that a consumer’s actions, usually the purchase of a product, will benefit a charity. Cause marketing also could include campaigns soliciting customer donations at checkout, corporate sponsorships, non-CCV licensing and even hybrid models that incorporate CCVs plus other campaign components.
When developing cause marketing campaigns, it is important to be aware of state laws on fundraising, charitable solicitations and CCVs. More than 40 states have regulations related to charitable work, most focused on registration, financial reporting and advertising disclosures. In addition, more than 20 states have laws that specifically regulate CCVs. That’s an important distinction, because not all cause marketing will involve a CCV. It’s critical for organizations to understand exactly what type of campaign they are conducting so they can determine the applicable laws they need to follow.
Regardless of which state laws apply to a campaign, organizations must always be cognizant of Section 5 of the Federal Trade Commission (FTC) Act, which prohibits unfair or deceptive ads or practices (UDAP). It is essential to be sure that no part of a cause marketing campaign or how it is being marketed could be considered misleading to consumers.
State Laws and CCVs
Different states have different definitions of CCVs. The most standard definition is the one used in New York, defining a CCV as “any person who for profit is regularly engaged in trade or commerce other than in connection with the raising of funds or any other thing of value for a charitable organization and who advertises that the purchase of goods, services, entertainment or any other thing of value will benefit a charitable organization.” [N.Y. Exec. Laws Section 171-a] In New York and most states, a CCV must involve a charitable organization (not just a cause), a for-profit company and advertising of the campaign being conducted.
There are a limited number of states, such as Massachusetts, that define CCVs more broadly. For example, in Massachusetts, there doesn’t need to be a charitable organization involved, as long as the for-profit company is conducting the campaign for a charitable purpose. The key point is that it is critical to understand how CCVs are defined and which laws apply in each state in which the campaign is being conducted.
All of the CCV statutes are focused on advertising. If an organization decides to donate a dollar every time someone purchases its product but it doesn’t advertise the donation, it doesn’t need to worry about the CCV statutes. When the organization talks about the donations—whether in social media, on TV or through any other channel—its activities fall under the CCV statutes.
General requirements for CCVs include:
- A written contract between the charitable organization and the for-profit entity
- Registration and bonding (The charitable organization must be registered as a charity in all states in which the campaign will be conducted. If a charity is not registered to solicit in one of the states in which the CCV must register, the commercial co-venturer’s registration will not be accepted.)
- Advertising disclosures
- Accounting, recordkeeping and reporting
A few states impose some of the requirements above that are normally the responsibility of the commercial co-venturer on the charity, as well. For example, in those states, the charity also may be required to file a notice; have a written contract; and follow specific accounting, recordkeeping and reporting processes. Therefore, any agreements with a charity should include the requirement that the charity comply with applicable CCV laws.
The New York attorney general issued guidelines titled “Five Best Practices for Transparent Cause Marketing” in October 2012. The guidelines lay out five principles that remain important rules to follow today:
1. Clearly describe the promotion.
2. Allow consumers to easily determine the donation amount.
3. Be transparent about what is not apparent.
4. Ensure transparency in social media.
5. Tell the public how much was raised.
Questions to Determine Campaign Structure
To determine the type of CCV campaign being run—and therefore, the laws that are applicable—it is important to work with the business team to answer the following questions:
- Who are the participants?
- Is a purchase or a payment being made by consumers?
- Who is making the donation to the charity—the for-profit company or the consumer? (Consumers making the donation can raise significant potential problems, because the organization could be considered a professional fundraiser. Organizations should be extremely wary of any campaign that involves soliciting consumers to make donations directly to a charity.)
- What triggers the donation? (For instance, does the consumer need to buy something or make a pledge? If the donation is a predetermined amount and there is no trigger, it’s important that the marketing not imply that a consumer action will impact the donation. Any implication of a trigger if there is none could violate FTC and state laws.)
- Is any content being licensed from the charity? (If there is content being licensed, that should be covered in the contract with the charity.)
- What will be communicated to the public? (For example, will the corporation be listed as an official sponsor—or will the promotion say that each purchase will result in a donation?)
- Where will the promotion take place?
- How long will the promotion run?
- How frequently will donations be transferred?
- Do the parties need to be registered in the relevant states?
For healthcare organizations, it also is critical to know how the money will be spent—and ensure it is clear that the donation is for a designated fund that will be used for a charitable purpose. There should be language in the agreement stating that the money being donated is not intended as a payment to induce referrals. In addition, to the extent any patient information is being shared or disclosed, it is important to ensure that Health Information Portability and Accountability Act (HIPAA) authorization requirements are met. To be safe, HIPAA compliance requirements should be spelled out in the written agreement.
Overall, healthcare organizations need to be meticulous in their due diligence and regulatory analyses to ensure that the relationship and any resulting marketing campaigns are structured in a way that does not run afoul of any federal or state laws.